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High debt a concern for Shire

The pharma group is in the process of being taken over by its Japanese peer
High debt a concern for Shire

Takeda’s shareholders no doubt perused Shire’s (SHP) half-year results with great interest. If management at both these pharma giants get their way, the two companies will have been slapped together by this time next year.

IC TIP: Sell at 4401p

For the Japanese group – whose investors have been incredibly sceptical about the merger – it was therefore probably a relief that Shire has managed to cut its net debt by $1.4bn (£1.1bn), largely thanks to decent free cash flows of $756m. Debt has been one of the main source of nervousness amongst investors. Moreover, with the integration of Shire’s last major corporate deal (its acquisition of Baxalta in 2016) largely complete, costs dropped dramatically, sparking a 108 per cent increase in operating profits.

But considering Takeda has said it is buying Shire for the quality of the pipeline, it is concerning that the group has been forced to abruptly cancel the phase two trial into one of its most exciting new liver disease drugs, SHP626. Meanwhile, research and development expenditure has dropped to 11 per cent of total revenues, from 14 per cent in the first quarter of 2017. By the time the company is part of Takeda it will also be without its oncology division – French group Servier is set to buy the franchise for $2.4bn in the third quarter.

SHIRE (SHP)    
ORD PRICE:4,401pMARKET VALUE:£40.2bn
TOUCH:4400-4401p12-MONTH HIGH / LOW:4,453p2,941p
DIVIDEND YIELD:0.6%PE RATIO:11
NET ASSET VALUE:4,020ȼ*NET DEBT: 48%
Half-year to 30 JunTurnover ($bn)Pre-tax profit ($bn)Earnings per share (ȼ)Dividend per share (ȼ)
20177.320.60665.09
20187.691.171285.60
% change+5+96+94+10
Ex-div:06 Sep   
Payment:19 Oct   
*Includes intangible assets of $49.2bn, or 5,376ȼ a share    £1=$1.31